Archive for February 26th, 2008

India’s Union health minister Ambumani Ramadoss has always expressedstrongly that celebrities like film-stars should be banned from smoking in public domains like movies. He believes it leads to other people copying the stars and leading to increase in smoking habits in the population.

His ire is particularly on Shahrukh Khan (SRK) and they have exchanged quite a few war of words since then. SRK even calls smoking a ‘creative liberty’. SRK has many backers who believe in freedom and suggest better way is to educate public (see this for instance.)

Actually the war of words is indirectly between the neoclassical economics (SRK and the liberals) and behavioral economics/BE (Ramadoss ). Former believes consumers are rational and can take care of what works best in their interest. So if a person realises smoking is not good for him he will not smoke. Hence, the need to educate and let people decide.

And the latter believes people are predictably irrational and make the same mistakes time and time again. So to expect them to choose wisely is not the right thing to do. Hence, to expect them to not to take up smoking by seeing advertisements may work for some but not all. We all know how difficult it is for a person to quit smoking once he starts, so all that rationality might not work.

The BE camp would suggest people take up smoking in varied emotions like stress, excitement etc. This is quite true as most of us know some people do take up smoking trying to look cool, fashionable, copying some movie-star etc. The smoking product companies knew this all along, and that is why you have most ads showing smokers as cool, macho etc. Now, the ban has been imposed on such ads but it has already created enough damage.

BE camp might say people know the ill-effects but cannot resist the temptation. So, it is better to try and request filmmakers to not smoke in their movies. This can atleast stop the habit picked up due to imitation.

Like this:

Robert Birgeneau,Chancellor of University of California has some valuable lessons for higher education in India. He offers couple of gems:

There is a focus on skill development in countries like India, primarily to meet the increased demand for manpower across the world. How do you visualise the role of universities in the skill development mission?

There is a need to understand the difference between education and skill development. Skill development is about training, it serves short-term requirements, it does not serve long-term needs. The responsibility of universities is to educate people not just to train them.

An education, which universities should provide, teaches people to learn to solve problems. Skill development doesn’t do that; it provides training. Consider this: 50% of those involved in management perform different skills from what they learnt. It is education that helps people make this transition to new roles and not skill development.

Next is the role of Ivy leagues:

How central is the state in providing higher education, especially in a country like the United States which has well-known universities which are not public education institutions?

Ivy League institutions account for less than 1% of those in the university system these are privileged sections. Fact is, 75% of students in the United States are educated in public institutions. When we talk of the impact on the American economy, we need to understand that it is totally dominated by public institutions. The state has a responsibility to provide adequate access, the private system is biased to the wealthy.

And finally the competition to retain faculty:

Higher education institutions across the world face the challenge posed by industry and the corporate sector when it comes to retaining faculty. How does an eminent public institution like UC Berkeley deal with this challenge?

Interestingly, it is other research universities rather than industry to which we lose faculty. At UC Berkeley, we face competition from other rich research universities for faculty. Industry doesnâ€™t pose such a threat. We offer the opportunity to teach at a flagship research university. We also have a number, not a huge number, of faculty members who straddle both teaching and private sector jobs.

All this is quite different from what we believe in India – Universities need to address talent shortages, private sector should takeover education, the need to expand ivy league colleges in India etc.

Like this:

I have often cribbed about the numerous housing problems in Mumbai (here, here and here). I have been noticing quite a few things lately about the housing market in Mumbai.

Houses are similar to equities/shares: Usually, the demand is inversely related to price i.e. if price goes up demand falls and vice versa. However, in equity markets we see that if prices rise demand for that sharte rises expecting further appreciation. This is infact not limited to just equities but commodities as well, which are traded in various exchanges these days.Similar behavior is being seen in housing markets. As prices have risen, so has the demand. I am yet to see slowing down of demand for houses in Mumbai.

This takes me to the next part of the analysis. What is driving so much demand? Where is so much money coming from? How come people are willing to buy more and more at higher and higher prices. Most properites are already booked and you are oftyen told that only a couple of flats are left. And this is a common statement no matter which part of the town you are in.The people say it is due to the growth in economy which has led to higher salaries/incomes etc. I don’t really agree as economy has increased by about 30% in 4 years, the housing prices have increased by almost 200-300% in all the regions. I think a large part of the increase is due to the increase in equity prices. The high equity prices have led to increase in wealth which has been deployed in housing markets.

Another point to debate is whether the housing prices have reached to new highs and would not decline to the earlier levels. In economist jargon, whether the demand curve has shifted to the right indicating higher prices for each unit. Like we say Indian economy has moved to a new growth trajectory can we say the same for housing markets?Here, it has been seen that this is not the case as similar highs were reached earlier as well (around 1993-95). So we can’t say whether demand curve has shifted right or is it simply a movement on the curve.

Another point is that information asymmetry is at its highest (and worst) in this market. How do you know whether the price is a correct one? How do you know whether the builder is a good one using proper construction material?I still haven’t figured out why we can’t have some regulation in this market to verify builders, prices etc. Given the huge costs and lifetime incomes, it is really surprising. The Banks do act as a quasi-regulator while giving loans but it is not enough. We still do not know whether the prices are right or is because of collusive practices.

The summary is the same- it is going to be really difficult to survive in this city going ahead.

Addendum:

I get some support from Govind Ethiraj. He expresses very similar views in his article and adds that RBI should only cut rates when property prices fall.